Decision Making Using Process Cost Data

Hall Company produces synthetic materials from a chemical extrusion process. Management has been concerned that material costs per pound are too high. Hall produces only a single product on four separate extrusion lines. The product is processed over two shifts per day. The following data have been collected for analysis:

January

Total materials costs

$$335,050$

Total number of pounds produced

$50,400$

Cost per pound

$$6\mathrm{.}65$

Materials Costs by Production Line

$\backslash$table$[[,$Line $1,$Line $2,$Line $3,$Line $4,$Total$],[$Shift $1.,$$$36,000,$$$36,000,$$$40,300,$$$36,000,$$$148,300],[$Shift $2.,45,500,45,500,50,250,45,500,186,750],[$Total$.,$$$81,500,$$$81,500,$$$90,550,$$$81,500,$$$335,050]]$

$\backslash$table$[[,,,,,],[$Shift $1,6,000,6,000,6,200,6,000,24,200],[$Shift $2,6,500,6,500,6,700,6,500,26,200],[$Total$...,12,500,12,500,12,900,12,500,50,400]]$

Assume you have interviewed the following individuals in an attempt to discover the problems causing material costs to be inflated: Juanita Marcos, shift $1$ supervisor; Ed Curcek, shift $2$ supervisor; and Hal Bundy, plant manager. A summary of their responses are given below.

Hal: I just received a directive from headquarters to increase my production rates. I talked to Ed and Juanita about kicking up our production from our old average of $6,000$ pounds per shift. Juanita did not seem to think that this was a good idea. My bet is that our problems are with Juanita's shift.

Juanita: I have decided to keep first$-$shift production on Lines $1,2,$ and $4$ at $6,000$ pounds per shift. That's because I remember the last time we had our production rates increased. Our materials consumption shot through the roof. Therefore, I$\text{'}$m running a small experiment on Line $3$ before increasing the speeds across the whole shift. I know Ed has increased production on the second shift, but he was just brought in from another plant that has new machinery. I don't expect he's had the historical experience with these older machines that l've had.

Ed: I've increased production rates on my shift, but it's hard to tell how things are going. I thought the new directive made plenty of sense. Back at my previous plant location, we ran machines at $7,000$ pounds per shift without any trouble. These older machines don't seem to be running nearly as well as the machines back at my old place. I guess when we see the numbers at the end of the month we'll have a good feel for it$.$

Assignment: Provide an analysis of the data that will assist the management of Hall Company in determining whether or not the increase in production rates is having a favorable impact on production costs.